MNI ASIA OPEN: Holzmann Tips ECB Pricing North Of 4%

NEWS

CANADA (MNI): BOC Must Stay Ready To Hike Again On Hot Inflation: OECD
Canada's central bank must stay prepared to live up to its pledge of hiking interest rates again if inflation remains stubbornly high, the OECD said in an annual review of the nation's economy published Monday. The Paris-based OECD sees inflation of 4% this year, faster than the Bank of Canada's forecast of 3.6% and said economic risks remain elevated amid the Ukraine war, volatile financial markets and heavily indebted Canadian households.

ECB (MNI): March, April CPI Key For ECB Rates After March-Lane
Inflation data for March and April will be key for setting European Central Bank rates after March, ECB chief economist Philip Lane said in a detailed speech Monday. "The current information on underlying inflation pressures suggests that it will be appropriate to raise rates further beyond our March meeting, while the exact calibration beyond March should reflect the information contained in the upcoming macroeconomic projections, together with the incoming data on inflation and the operation of the monetary transmission mechanism," Lane said, pointing also to first quarter flash GDP and sentiment indices.

ECB (MNI): ECB Should Consider Lower EZ Price Outcomes-Centeno
The European Central Bank's Governing Council should take account that inflation in January and February was lower than projected in the December forecast when it meets next week, Bank of Portugal’s Governor Mario Centeno told La Stampa in an interview published Monday.

ECB (Handelsblatt): Holzmann Calls for Four Further 50bps ECB Hikes
He calls for four sharp interest rate hikes by the summer and faster balance sheet reductions by the central bank and for interest rates to be raised by 50 basis points at each of the next four meetings. Holzmann believes that a restrictive level of interest rates that would slow down the economy would only be reached from a deposit interest rate of four percent.
First comments we've seen from Holzmann on rates specifically in about a month - he stated in early February that he sees the ECB terminal rate being hit around the middle of the year, or Q3 by the latest. Back then he also stated that he cannot tell where the terminal rate will be - so appears we're getting some more clarity over his view here.

UK (MNI): EU-UK: DUP Leader-Report On 'Windsor Framework' By End-March
Leader of Northern Ireland's Democratic Unionist Party Sir Jeffrey Donaldson has stated that he has set up a group to consult on the 'Windsor framework' announced last week by the UK and EU, with the aim of having a report by end-March. The framework is intended to resolve issues in the Northern Ireland protocol within the Brexit withdrawal agreement. At present the DUP, the largest unionist party in Northern Ireland whose support is crucial for re-establishing the power-sharing executive in Stormont, has yet to offer its view on the framework.

DATA

US JAN DURABLE ORDERS -4.5%
US JAN FACTORY ORDERS -1.6%; EX-TRANSPORT NEW ORDERS +1.2%
US JAN NONDEFENSE CAP GOODS ORDERS EX AIRCRAFT +0.8%

CANADA FEB IVEY PURCHASING MANAGERS INDEX 51.6 SA

EUROZONE JAN RETAIL SALES +0.3% M/M, -2.3% Y/Y

US TSYS: Treasury Yields Ending Session Near Day’s Highs With Powell Eyed

• Cash Tsys are holding close to session highs, with yields +2-3.5bps higher on the day after more than reversing an overnight bid (with 10Y real yields also +3.5bps). The grind higher for yields came through most of the US session with little by way of headline drivers and also saw a small pull back from fresh multi-decade lows for 2s10s at -93bps.
• In futures space, TYM3 trades 3 ticks lower at 111-00, recently off lows of 110-30+ with volumes below average ahead of Powell (1.13M vs 1.4M av). It helps firm up the view that Friday’s bounce appears corrective whilst support remains at the bear trigger of 110-12+ (Mar 2 low).
• As for Fed rate expectations, the terminal has pushed back higher to 5.48% in Sep (+3bp on the day) but remains off Thursday’s cycle high of 5.51% before just 13bp of cuts to 5.35% come year-end.
• Upcoming events: Powell headlines tomorrow with a Senate appearance at 1000ET, before interest in 3Y supply in what’s otherwise a light docket with the week’s data calendar gearing up to payrolls on Friday.

EGBs-GILTS CASH CLOSE: Holzmann's 50s Bear Flatten German Curve

Commentary by ECB officials drove most of the price action in Monday's trade, with Germany leading the European bear flattening move.

• There was limited reaction to ECB Chief Economist Lane's speech on underlying inflation dynamics (which reinforced that hikes were set to continue past March), but an interview with Austria's Holzmann calling for 4 consecutive 50bp hikes saw the German short end sell off sharply around midday.
• The latter set a hawkish tone following a constructive start to the session. ECB terminal rate expectations rose to a fresh cycle high just shy of 4.10%.
• Gilts followed the lead of Bunds; periphery EGB spreads were mostly wider.
• Most activity in the futures space was spread related, with the quarterly roll nearly complete ahead of Wednesday's deadline.
• Data flow picks up early Tuesday with German factory orders.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 10.1bps at 3.315%, 5-Yr is up 6.2bps at 2.898%, 10-Yr is up 3.4bps at 2.749%, and 30-Yr is up 0.1bps at 2.663%.
• UK: The 2-Yr yield is up 7.7bps at 3.776%, 5-Yr is up 5.1bps at 3.703%, 10-Yr is up 1.7bps at 3.866%, and 30-Yr is up 0.1bps at 4.214%.
• Italian BTP spread up 1.1bps at 182.6bps / Spanish up 0.2bps at 94.8bps

FOREX: CNH Consolidates Early Losses, CHF Outperforms

• CNH extended losses early on Monday against the USD, with China's more conservative growth targets continuing to work against the currency to start the week. USDCNH has topped resistance at the 61.8% retracement for last week's leg lower, crossing at 6.9415. With prices consolidating throughout the US session, attention will turn to the more medium-term level at the 6.9815 100-dma - a tech point that successfully contained prices at the end of February.
• EURUSD continued to creep higher during Monday trade, with the pair printing a new high at 1.0694, a few pips above resistance at 1.0691 - last week's best levels. The initial catalyst for the Euro outperformance was the somewhat hawkish tone from ECB's Holzmann (Sees 4 further 50bps rate hikes this year), with the bounce off the lows for the US 10y yield failing to slow the day's uptrend in the pair.
• Despite the single currency’s outperformance on Monday, EURCHF sits slightly lower on the session following the above-estimate Swiss inflation data released earlier today. In similar vein, the Swiss Franc is the best performing G10 ccy against the greenback, rising 0.42% approaching the APAC crossover. The data has prompted notable sell-side outfits to adjust their March SNB calls, further underpinning the Franc strength on Monday.
• A late turn lower for equities cemented the Australian dollar as one of the worst performers. The weakness comes ahead of the overnight RBA decision, where the central bank are widely expected to hike rates 25bp to 3.6%.
• China trade data will also cross overnight before the focus then turns to Fed Chair Powell, due to testify on the Semi-Annual Monetary Policy Report.

US STOCKS: Equities Pare Gains Ahead Of Powell Tomorrow

• ESH3 has almost fully reversed solid gains, at one point up +0.8% as it feels some pressure from USTs, down more than 30 points for now +0.1% on the day at 4052.
• With few obvious headlines for the sharper moves lower, it could be some profit taking after yesterday's +1.6% gain, coming with some solid sell programs.
• Volumes are below average, similar to a more pronounced tailing off in TYA volumes, ahead of Powell tomorrow.
• The high of 4082.5 forms initial resistance after which sits 4100.2 (Fibo retrace of Feb 2 - Mar 2 bear leg) whilst support is notably lower at 3974.0.
• Sizeable differences across other indices: Nasdaq +0.1%, Dow +0.1% and Russell -1.5% (all E-minis), with higher real yields on the day (US 10Y +3.5bps) potentially weighing more heavily on smaller names.

COMMODITIES: WTI Clears $80 After Reversing China Growth Target Concerns

• Crude oil has gained after reversing concerns earlier in the day on China’s 5% growth target. Elsewhere in news, Gunvor's CEO said planned Russian oil cuts of 500kbpd in March aren't yet seen in the market.
• WTI is +1.0% at $80.51, coming closer to resistance at $80.78 (Feb 13 high) as it continues recent gains. Clearance there could open key resistance at $82.89 (Jan 23 high).
• Brent is +0.5% at $86.29 having move above resistance at $86.00 (Mar 3 high) to approach $86.55 (Feb 13 high) after which lies the key $88.78 (Jan 23 high).
• Gold is -0.5% at $1846.63 in a surprising move considering a weaker dollar, although likely weighed on by US yields moving higher through the session. An earlier high of $1858.26 set new resistance (after which sits $1870.5, Feb 14 high) whilst it remains far above support at the bear trigger of $1804.9 (Feb 28 low).

US DATA: NY Fed Global Supply Chain Pressure Index Sharply Lower In Feb

• The NY Fed’s GSCPI (found here) moved sharply lower in February, from 0.94 to -0.26 for the first negative reading since Aug’19.
• The series had tracked sideways at that circa +1std dev reading since September at a time that the moderation in core CPI goods and PPI inflation had stopped, with both surprisingly accelerating into January.
• “There were significant downward contributions by the majority of the factors, with the largest negative contribution from European Area delivery times. The GSCPI’s recent movements suggest that global supply chain conditions have returned to normal after experiencing temporary setbacks around the turn of the year.”